When wage earners are asked if they are better off today than before, many will probably be quick to say no. Such an instant response is borne out by new wage figures. Worse still, few signs indicate there will be any significant improvement in the near future.
The average monthly real wage per employee was at 2,364,074 won during the first quarter of this year, down 4.08 percent from a year before. It fell for the first time in a year and a half. Of course, it was high inflation that ate into nominal wages.
Nominal wages remained almost stagnant, with a negligible increase of 0.19 percent in the first quarter. On the other hand, inflation was galloping at 4.5 percent. The second quarter will have been little different, given that the consumer price index had remained above the 4 percent level during the first six months of this year.
Few expect inflationary pressure to taper off anytime soon. President Lee Myung-bak’s administration recently backed off from its blind pursuit of growth and promised to focus on stabilizing consumer prices. Still, its growth target may be too high to keep consumer prices in check.
The administration, which had earlier assumed that inflation would be tamed in the second half, acknowledged its tenacity in its recently revised 2011 economic outlook: It raised its inflation forecast from 3 percent to 4 percent. It also lowered its growth target from 5 percent to 4.5 percent.
The administration took anti-inflationary action when it apparently was awakened to the reality that high inflation was here to stay. Contrary to its earlier assumption, inflationary pressure remained strong when the first half was approaching its end.
The consumer price index rose 4.1 percent in May and 4.4 percent last month, although the Fair Trade Commission launched and threatened to launch investigations into price-fixing and other charges of unlawful practices against business enterprises that raised prices. But the effectiveness of these arm-twisting tactics was called into question.
A notable case in point was a temporary 100-won-per-liter cut on gasoline prices, which was put to an end on Wednesday midnight. Now the administration has been entreating the refineries to phase out the price cut gradually.
The administration said with justification that energy, together with food, was the main culprit. Core inflation ― inflation that excludes items with volatile price movements, such as food and energy ― was at 2.8 percent in May. Many economists maintain core inflation serves as a better measure in forecasting medium-term inflation.
But the administration is well advised not to read too much into the May figure for core inflation, given the forecast that food and energy prices will remain strong during the foreseeable future. If so, headline inflation ― total inflation as opposed to core inflation ― will not fall to a tolerable level anytime soon, if ever. Moreover, the nation’s May core inflation was 1.6 times higher than the OECD average.
The seed of high inflation was sown when the administration continued to keep the economy in high gear after successfully pulling it out of the global financial crisis by pumping liquidity into it. It did not heed the warning that inflation would haunt the nation if the administration continued its growth-first policy. An economist says that, had it taken anti-inflationary measures six months to one year ago, it would have pared as much as 0.5 percentage point off the consumer price index.
The Lee administration and the ruling Grand National Party will have to brace for the time of reckoning, which is fast approaching. During the run-up to the parliamentary elections in April, wage earners will continue to think about whether they are better off now than before.
